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NCSL Report: States Enacted $1.3 Billion In Tax Cuts in 2013 Legislative Sessions

Tuesday, August 13, 2013

DENVER--Tax policy actions taken in the states in 2013 legislative sessions resulted in a net tax cut of $1.3 billion, according to a report released Aug. 12 by the National Conference of State Legislatures.

Substantial changes in income taxes, sales taxes, and transportation funding mechanisms dominated 2013 legislative tax policy discussions, the report said. “If there is a theme to emerge from this year's tax changes, it would have to be one of reform,” it said.

But the net tax reduction of 0.2 percent is a bit misleading, the report stated. Legislative sessions saw more activity in 2013 than what is reflected by the total, it said.

The biggest aggregate cut came in the category of personal income taxes, which will see a net tax reduction of $1,892,700,000 in fiscal year 2014, according to the State and Budget Tax Actions: Preliminary Report, released at the start of NCSL's annual meeting in Atlanta.

Ohio's personal income tax cut accounted for $1.2 billion of that reduction, the report stated. Iowa, Maine, Ohio, North Dakota, and Wisconsin also enacted large tax decreases, it stated.

Motor Fuel Tax Reductions

Reductions in motor fuel taxes resulted in the second largest category of state tax cuts, with a total of $531.9 million in reductions.

Sales and use taxes increased by a net $720 million, the largest category of aggregate tax increases. Sales and use tax policy was driven by activity in a handful of states, however. Virginia, for example, increased sales taxes by nearly $1.3 billion by raising the rate and imposing the sales tax on fuel as a part of a major change in the way it plans to fund transportation. In so doing, it eliminated its motor fuel excise tax.

Maine also raised the general sales tax rate, the report stated. Minnesota and Ohio expanded the sales tax base to a number of previously exempt services as part of larger tax reform measures, it said.

Arizona reduced sales taxes by more than $900 million when a temporary rate increase expired after voters declined to extend it last November, the report said. Kansas lowered its rate from 6.3 percent to 6.15 percent.

Increases also came in tax categories of corporate income ($95.2 million), health care ($232.9 million), tobacco ($377.4 million), and alcoholic beverages ($5.1 million).

Notable Tax Reform Efforts

A notable development of 2013 was the number of states that considered tax reform, the report said. Some states broadened their sales tax bases by expanding into services, while others changed transportation-related taxes.

As of August, 12 states reported new tax reforms--a number that will likely rise by the end of 2013. The Missouri Legislature, for example, passed a measure that would reduce income tax rates, but the measure was vetoed by the governor. Legislative leadership is attempting to override the veto.

Maryland, Massachusetts, and Vermont raised motor fuel taxes as part of broader transportation funding plans, the report said. Wyoming raised the gas tax by 10 cents per gallon.

In FY 2013, states experienced strong general fund revenue growth--5.3 percent above FY 2012 levels, the report said. Most states attributed the increase to taxpayers pushing income tax into tax year 2012 to avoid an anticipated increase in federal tax rates in 2013.


Text of the report is at http://www.ncsl.org/Portals/1/Documents/fiscal/SBTA_PreliminaryReport%28final%29.pdf.

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